Whether you have an adviser or invest on your own, don’t invest in anything that you don’t fully understand. Take your time when making investment decisions and never sign documents you have not read carefully. Make sure you ask questions and are fully informed before parting with your hard earned money.

Asset Classes

An asset class is a group of investments that have similar levels of risk. Having investments from various asset classes helps diversify your investment portfolio. The term “asset allocation” refers to dividing your investments among various asset classes. Having a diversified portfolio will allow you to take advantage of the different strengths of each asset class while offering some protection from market ups and downs, known as “market volatility”.

Cash and Cash equivalents

This includes money in your bank account and investments that are generally very safe and give you quick access you your money, like a Savings Bond. Risks associated with these investments range from very low to medium, and returns are earned in the form of interest. The rates of return are relatively low compared to more risky types of investments.

Fixed Income Securities

When you buy a bond or other “fixed income security”, you are lending your money to a government or company for a certain period of time. In return, they promise to pay you a fixed rate of interest at certain times and to repay the “face value” at the end of the bond’s term (its “maturity date”). The “face value” (or par value) is the value the bond was issued at. Interest payments are based on the face value. The annual interest rate paid is called the bond’s coupon. Bonds tend to offer better rates of return than cash equivalent investments (such as a guaranteed investment certificate or Treasury bill), because you’re taking on more risk by lending out your money for a longer period of time.

Equities

When you buy stocks (also known as shares or equities), you become a part owner in a company. You may be entitled to vote at the shareholder meetings and each stock you own represents a claim on a company’s earnings and assets. Any profits the company allocates to its shareholders are called dividends.Compared to some other types of investments, stocks can be riskier but can potentially offer higher returns. The value of stocks can change very quickly over a short period of time.

Investment Funds

Investment funds (like mutual funds) are a collection of investments from one or more asset classes. Funds will focus on specific investments, such as government bonds, stocks from large companies, stocks from certain countries, or a mix of stocks and bonds. When you buy an investment fund you are pooling your money with many other investors. This allows you to invest in a variety of investments at a relatively low cost. Most funds are managed by a professional manager, freeing the investors from making complex investment decisions.

The value of a fund will change as the value of what it invests in goes up and down. The amount of risk associated with a particular fund depends on what the fund invests in.

When you buy a mutual fund, within 2 days you should receive a copy of Fund Facts, a simple guide that provides key information such as the fund’s risks, past performance and cost. Take a tour of this interactive sample to help you understand how your fund works.

Alternative Investments

Alternative investments are some of the most complicated types of investments. They can offer higher – than average returns, but also come with higher – than – average risks. They are meant for very sophisticated investors or investors who can afford to take higher risks and pay for specialized advice.

Investments in this asset class include options, futures and forward contracts, income trusts, principal protected notes (PPNs), foreign currency (forex) and hedge funds. Each of these different types of investments has medium to very high risk. They also have various costs associated with them, which could include: commissions, sales fees, management fees, operating fees or early redemption fees, among others.

Although you may be offered an investment in this class, it is important that you be comfortable with all risks and costs involved, and never invest in anything you don’t fully understand.

Helpful Tools:

Investments at a Glance (PDF) – download the full brochure for details about the types of investments in each asset class including the risks, types of returns, costs and other important things you should know before buying.

Understanding Mutual Funds (PDF) – our mutual funds brochure is an unbiased look at important aspects of mutual funds that can help you decide if they are right for you.

Fund Facts interactive guide – Check out this sample of Fund Facts, a guide that contains key information to help you understand a mutual fund. Starting in June 2014, this guide must be given to you within two days of a mutual fund purchase.

Buying a Mutual Fund ? Tip #1 – Know the Risks (mp4)
 
Buying a Mutual Fund ? Tip #2 – Know the Fees (mp4)
 
Buying a Mutual Fund ? Tip #3 – Know its past performance (mp4)